Unemployment response 'greatly harming' business recovery

'If some businesses could renew operations now, they cannot do so fully because Israel was in a rush to send all the workers on unpaid leave'

A man wearing a mask walks inside a shopping centre after Israeli Prime Minister Benjamin Netanyahu's government announced that malls, hotels, restaurants and theaters will shut down from Sunday, in an escalation of precautionary measures against coronavirus, in Tel Aviv, Israel March 15, 2020 (photo credit: REUTERS/NIR ELIAS)
A man wearing a mask walks inside a shopping centre after Israeli Prime Minister Benjamin Netanyahu's government announced that malls, hotels, restaurants and theaters will shut down from Sunday, in an escalation of precautionary measures against coronavirus, in Tel Aviv, Israel March 15, 2020
(photo credit: REUTERS/NIR ELIAS)
As the government acts to partially reopen the Israeli economy, a leading Israeli economist has warned that the country's reliance on unpaid leave and unemployment benefits to assist affected workers is "greatly harming" businesses' attempts to renew operations.
"As opposed to European economies that stimulate and encourage employers to hire or to keep their workers, very quickly giving the option of unpaid vacation has harmed the connection between Israeli employers and employees, and harmed business operations," said Daphna Aviram-Nitzan, the director of the Israel Democracy Institute Center for Governance and the Economy and of the council of the Israeli Economic Association.
Daphna Aviram-Nitzan, the director of the Israel Democracy Institute Center for Governance and the Economy (Credit: IDI) Daphna Aviram-Nitzan, the director of the Israel Democracy Institute Center for Governance and the Economy (Credit: IDI)
"If some businesses could renew operations now, they cannot do so fully because Israel was in a rush to send all the workers on unpaid leave."
Companies seeking to take advantage of increasing demand by bringing back employees on a temporary or ad-hoc basis, Aviram-Nitzan explains, would then disqualify the workers from greatly needed financial assistance provided by the Israeli Employment Service and National Insurance Institute (Bituach Leumi).
Maintaining the formal connection between employers and employees has been at the heart of economic stimulation packages rolled out by some countries, including in the United Kingdom where generous furlough payments are claimed and delivered by employers.
Israel's unemployment rate has soared since the start of the outbreak to over 26%, or more than 1.1 million individuals. According to a new analysis published by Aviram-Nitzan, the annual employment rate should reach 11.5% in 2020, compared to 3.8% in 2019.
By the end of the year, she said, the number of unemployed will stabilize at between 360,000 to 400,000 individuals - almost three times more than the number of unemployed in January-February 2020, when the number stood at approximately 140,000 individuals.
The record unemployment rate is expected to gradually decline in May, as some employees on unpaid vacation will return to work, notably in the hi-tech, industry and business services sectors. At the same time, other businesses have commenced layoffs, mainly in the tourism, culture and leisure sectors.
"The first thing the government should do is to switch to the European system and subsidise some part of workers' wages to stimulate them to go back to work," said Aviram-Nitzan.
"Ultimately, it will cost less for the government. They can pay more or less the same as the unemployment benefits, but they can gain taxes from the wages and business operations. For the workers, it is healthier than sitting at home on unpaid vacation and will increase the likelihood of staying in work."
There is little doubt that that the coronavirus outbreak will lead to an acceleration in Industry 4.0, also known as the Fourth Industrial Revolution, where the physical, digital and biological worlds are merged.
The crisis has forced all economies, businesses and healthcare systems to learn to work remotely or at a safe distance, providing the catalyst required for greater implementation of digital technologies.
While almost half of all new unemployment benefit claimants are aged 20-34, Aviram-Nitzan warns that older workers and those who "cannot adjust to the digital world" will be most at risk in the imminent technological revolution.
"The government should put money into vocational and educational training to be ready for the new labor market, so that employees can be ready to give the business sector what it needs," she said.
As businesses emerge from the uncertainty of the coronavirus crisis, Aviram-Nitzan said governments seeking to stimulate the private sector should invest their money "in the right places."
Smart governments should invest, she said, in renewable energies, electric vehicles and sustainable building to be ready for the next major, and this time irreversible, global threat: climate change.